United States Supreme Court Considers Application Of American Pipe Tolling To Subsequent Class Actions
04/03/2018On Monday, March 26, 2018, the United States Supreme Court heard oral argument in an appeal that presents the question whether American Pipe tolling—which provides that the pendency of a class action generally tolls the statute of limitations for claims of individual members of the putative class—applies not just to subsequent individual actions but also to subsequent class actions. Transcript, China Agritech, Inc. v. Resh, No. 17-432 (U.S. argued Mar. 26, 2018). Plaintiffs, alleged owners of shares in China Agritech, filed a putative securities fraud class action following the filing of two other similar class actions for which class certification had been denied. There was no dispute that the claims of the individual named plaintiffs were timely under the tolling rule of American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974). The district court, however, dismissed the class claims as time-barred, only to be later reversed by the Ninth Circuit. The Circuit Courts of Appeals have reached varying conclusions regarding whether, or the circumstances in which, the filing of a putative but ultimately not certified class action will operate to toll subsequently-asserted class claims, thereby allowing for the seriatim filing of otherwise time-barred class actions in the hope that a class may eventually be certified. The China Agritech case provides an opportunity for the Supreme Court to resolve the conflict.
The questioning from the Justices highlighted some of the competing policy and other concerns at issue. It appeared to be an accepted premise that the underlying rationale for the tolling rule of American Pipe included avoiding the need for absent class members to file a multiplicity of individual actions to avoid having their claims be barred under the statute of limitations, so long as they acted diligently (in other words, within the statute of limitations, as tolled during the pendency of the class action) after denial of class certification to assert their individual claims. A key dispute centered on whether it furthered the objectives of American Pipe to allow absent class members who continued to “sleep” on their rights after the initial denial of class certification—by failing to file an individual action—to nevertheless benefit from American Pipe tolling by having their claims asserted on their behalf in a subsequent class action. For example, Justice Gorsuch wondered whether it was appropriate to “stack [class action cases] forever [when assessing the statute of limitations], so that try, try again, and the statute of limitations never really has any force in these cases” and what the Court should “do about the congressional judgment that there should be a statute of limitations.” On the other hand, questions were raised suggesting that, especially in cases in which certification was denied for reasons unrelated to the merits of maintaining the case as a class action (e.g., an atypical or inadequate class representative), it would contravene the efficiency and fairness objectives of American Pipe to require absent class members to file individual actions to pursue their claims. Thus, Justice Sotomayor repeatedly challenged counsel for the petitioner as to why the Court should adopt a rule that would encourage the filing of a multitude of individual claims when a class action could be used as an efficient litigation tool. Relatedly, Justice Gorsuch inquired whether it would be appropriate to give an individual plaintiff who timely filed suit after a denial of class certification the benefit of equitable tolling, yet deny him or her the ability to invoke Rule 23.
It is always difficult to discern how the Court might rule based on questioning during oral argument. However, a general impression from the transcript is that neither insisting that only individual actions are tolled nor concluding that class action rights are always tolled is likely to satisfy a broad swath of the Court. The Court should have some flexibility given that American Pipe is a judge-made rule emanating not from statute but rather the Federal Rules of Civil Procedure. One can also question how consequential this issue ultimately will be given the Supreme Court’s 2017 ruling in the ANZ case that no plaintiff—whether individually or on behalf of a class—benefits from American Pipe tolling once the Securities Act’s three-year statute of repose has expired.